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Saturday, July 08, 2006

Venture Capital, India & The Silicon Valley

Norwest's Vab Goel finds that early stage companies in India are getting valuations at levels comparable to China. He believes that in India, there are not many true early stage companies & there aren't that many investment opportunities yet. The few that are there, are going to get big prices. As for later stage companies, the valuations are probably higher in China than in India China has taken multiple companies public on the Nasdaq; that has investors paying more.

In reality, as I have covered earlier, there is little or no real VC money available in India, as can be made available across various tech sectors(A limited number of online business related late investements are happening in india now). Companies that are receiving money in India are either spin outs from existing large businesses, captive units or second tier outsourcing providers that may lack the size or scale to compete with IT service giants and want the private equity money to grow through rollup and acquisitions. Investors find that in the early-stage investing business, there are a few small funds that are local to India but have not done too many deals and highlights venture money goes into early stage, pre-product or pre-revenue companies in the US , while a majority of the private equity is going into late stage businesses in India.

Courtesy of Rajesh saw this view on how failure breeds success. Breakthrough innovation - an imperative in today's globally competitive world, in which product cycles are shorter than ever - is becoming so extraordinarily hard. It requires well-honed organizations built for efficiency and speed to do what feels unnatural: Explore. Experiment. Foul up, sometimes. Then repeat.

Sramana Mitra listening Geoffrey Moore’s response on silicon valley’s future captures it :
- Silicon Valley is very good at failing. Failing fast. Learning from failures. Using that learning to do new and different things. In any other place in the world, you get one chance, and if you fail, that carries a stigma for life, and you never get a second chance. Very powerful advantage.
- The US still has the best higher education system. Great universities.
- The US still has the most mature and best organized capital market.
As of now the the silicon valley edge appears real. Today as I see it, in general most indian enterprises are hardly innovation chasing entities, and the framework for VC entry & exits are poorly defined. Coupled with limited VC activity in the past and archaic regulations – these make it a tougher breeding ground for enterprises like that of what is seen in the valley. VC’s and Angel’s may find it difficult to spot the next Flickr coming out of India. Angel investments and VC are so close to each other – the absence of one hurts the other very badly. The big company boards in India are mostly filled with family members and friends. The investor activism is very limited – the culture in general cascades across the ecosystem – the concept of family acting as passive investors leaving the running of the enterprise to professionals are quite limited in numbers and where in vogue it is mostly within well defined spheres of activities - in such cases direct compensations are better and not necessarily linked to sweat equities. Correspondingly the spark needed to work on innovative ideas aided by sweat equities for key employees second to many levels down mostly does not exist. The ecosystem inside India is also tough where job market dynamics at senior levels are less active compared to what we see in the western markets. The talent levels inside India continue to be very high – all it requires is a vibrant ecosystem - but not many recognize the issue here - talking india's growth for granted may be the biggest mistake - the country can't afford it. With all this , without doubt one hears in India- waves and waves of ideas for entrepreneurial moves in the tech arena – the spark, the ecosystem and the combination. The indian market shows propensity ot consume a lot many things. Entrepreneurs can spot many business opportunities therein as well.End of the day, its ideas, innovation, scale & speed of execution that matters more. As I wrote earlier, The US is the economic engineof the world – lets hope that it continues to innovate faster, better and emerge stronger. Collaboration in innovation is always a workable solution. Together with the Asia let more innovation blossom and let the world prosper a lot more - innovation and prosperity are closely related.

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